What the 2022-23 Federal Budget means for you

Written by Shereen Churchill (Financial Adviser)

The 2022-23 Federal Budget was delivered last night, 29 March 2022. The dominant theme from this years’ Budget was cost of living. One of the key announcements from the Government in this area was a halving of the fuel excise (equivalent to 22.1c per litre) for the next six months, with effect from 30 March 2022. However, it is worth noting that the fuel excise is only one element that determines the cost of fuel at the pump, and other factors (such as the price of oil) may change and soak up some of the anticipated savings from this measure.

From a pure financial planning and wealth perspective, the budget was extremely quiet. The fact that there were no wholesale changes to the superannuation system promotes stability which is encouraging.

As is always the case, these measures will need to pass through the legislative process before they become law and may change during that process.

To help you understand the key announcements made by the Treasurer, ITL Financial Planning have put together a written summary of the key areas specific to self-funded retirees, professional families, and successful business owners.

Self-Funded Retirees

For our self-funded retirees, the major announcements were in relation to the extension of the halving of the legislated minimum draw-downs for 2022-23 as well as continued tax relief in the lower and middle income bands.  Whilst the announcements this year were minimal for super, it is important to remember a number of announcements from last year’s Budget will take effect from 1 July 2022, including allowing a downsizer contribution
to be made to super if you sell your principal residence at age 60 or above (currently age 65 or above) and the ability to make contributions between 67 and 75 without the need to meet the work test which currently applies.

The proposed tax relief which will benefit many self-funded retirees, is outlined under the “professional families” heading. Furthermore, you may be interested to read and inform your children or grandchildren about the Enhanced Paid Parental Leave and Home Guarantee Scheme announcements, which are also outlined under the “professional families” heading.

Professional Families

For our professional families, the biggest proposals were in relation to tax relief in the lower and middle income bands, superannuation guarantee increase as well as additional support for Working Parents and First Home Owners. Whilst the latter two proposals may not be beneficial to many of you, you may be interested to talk to your children about them.

Tax Relief

The Government has further extended the availability of the low and middle income tax offset (LIMTO) for an additional 12 months (as it did the last two years) and boosted it by $420.  Providing a maximum benefit (or tax saving) of $1,500 per person for those on taxable incomes between $48,000 and $90,000 and some benefit either side, before cutting out at a taxable income of $126,000 or above. The benefit of LIMTO is only gained when you lodge your income tax return for the financial year.

The Government has also proposed to make the cost of COVID-19 tests tax deductible, where this is required as part of returning to work, and they will increase the Medicare levy low-income thresholds for singles, families, seniors, and pensioners.

All the above tax relief is proposed to be effective this current financial year (2021-22).

The Government also announced expanded access to employee share schemes. Refer to the details outlined under the “Successful Business Owners” heading.

Superannuation Guarantee

The Government inferred (by way of no announcement) that the rate of super guarantee will increase by 0.5% to a rate of 10.5% from 1 July 2022.  It is currently legislated to increase at 0.5% per annum until it reaches a rate of 12.0% from 1 July 2025.

Home Guarantee Scheme

The Government will expand the Home Guarantee Scheme (available to first homebuyers and single parents entering or re-entering the housing market) and a newly introduced Regional Home Guarantee available to non-first home buyers purchasing or constructing a new home in regional areas, making up to 50,000 places available each year.  Under these schemes, the Government provides support to enable homes to be purchased with deposits as low as 5% and, in some cases, as low as 2%.

Enhanced Paid Parental Leave

Parental Leave Pay and Dad and Partner Pay will be combined into Paid Parental Leave as a single scheme providing up to 20 weeks in a fully flexible, shareable scheme for eligible working parents. It will also mean that eligible single parents will benefit as they will have access to two additional weeks. The Paid Parental Leave can be taken any time within 2 years of the birth or adoption of a child. The current rate of Parental Leave Pay and Dad and Partner Pay is based on the weekly rate of the national minimum wage, currently $772.55 per week before tax (indexed). The income test will also be broadened to have an alternate household income eligibility test.

The proposed changes to the extension of the halved minimum pension as well as legislated changes to the Downsizer Contribution and the Work Test Commencement age,which will also benefit many professional families, are outlined under the “self-funded retirees” heading.

Successful Business Owners

For our successful business owners, the biggest proposals were in relation to enhancements to the PAYG system, additional deductibility of investment in training, upskilling and digital technology as well as expanded access to employee share schemes.

Enhancements to PAYG Systems

The changes to the PAYG system may reduce the level of instalments payable by businesses by allowing companies to choose to have their instalments calculated based on current financial performance, allowing for some tax adjustments, when extracted from business accounting software. This measure will support business cash flow by ensuring instalments reflect current period performance.

Skills & Training Boost

Small businesses that invest in training and upskilling for their employees may be eligible for an additional 20% deduction on top of a deduction for the cost of the training itself.

Entities providing the training must be registered in Australia, with training provided in Australia or online. In-house or on-the-job training and expenditure for persons other than employees will be excluded.

Technology & Investment Boost

Similarly, eligible small businesses will be able to deduct an additional 20% of the costs incurred on business expenses and depreciating assets that support their digital adoption. Eligible expenditure would include such things as portable payment devices, cyber security systems, or subscriptions to cloud based services. An annual cap of $100,000 will apply in each qualifying income year.

Expenditure (under both “boost” proposals) incurred by 30 June 2022 will be claimed in tax returns for the following income year (2022-23). Eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

Employee Share Schemes

The Government will further expand access to employee share schemes (ESS), allowing employees at all levels to directly share in the growth of the businesses in which they work. Where an employer makes a large offer in connection with an ESS in unlisted companies, eligible participants will be able to invest up to:
– $30,000 per participant per year, accruable for unexercised options for up to 5 years, plus 70 per cent of dividends and cash bonuses; or
– any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.
Additionally, regulatory requirements will be removed for offers made to independent contractors where they do not have to pay for interest.

The other major announcements were in relation to tax relief in the lower and middle income bands, superannuation guarantee increase as well as additional support for Working Parents and First Home Owners. Whilst the latter two proposals may not be beneficial to many of you, you may be interested to talk to your children about them. These are all outlined under the “professional families” heading.

Concluding thoughts

Overall, the changes are positive for self-funded retirees, professional families and successful businesses. However as indicated earlier, most will require the passage of relevant legislation through Parliament and may change during that process.

This information has been prepared and issued by ITL Financial Planning and is current as at 30 March 2022. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The information in this document regarding taxation and legislative change is based on policy announcements which are yet to be passed as legislation and may be subject to future change.  This information contains material provided directly by third parties (mainly BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac). It is given in good faith and has been derived from sources believed to be accurate at its issue date. It should not be considered a comprehensive statement on any matter nor relied upon as such. ITL Financial Planning does not accept responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information does not consider your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ, and you should seek independent professional tax advice. It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change or further refinement.